New Perspectives on Microsoft Office Excel 2003 Tutorial 9

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Microsoft Office Excel 2003

• Tutorial 9 Data Tables and Scenario Management

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Examine cost-volume-profit relationships

• Suppose you were the owner of a water store. An
  advertising agency offers to guarantee that using
  their ad campaign would increase the volume of
  your business by 50 percent.
• How could you decide if the ad campaign would be
  worth the cost?
• Or, suppose that you are the chairman of a group
  that is considering beginning a charter school.
• What kind of information would you need to figure
  out if the school would be feasible?
• In both of these cases, what you need is a
  cost-volume-profit analysis, also called a CVP
  analysis or a break-even analysis.

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What is a CVP analysis?

• A CVP analysis shows the relationship between a
  business's expenses, volume of business, and
  profit.
• It shows how much volume the business needs to
  break even, given the expenses that the business
  incurs.
• It also shows what happens to the profit if the
  volume of business increases above the break-even
  point, or decreases below the break-even point.
• To do a CVP analysis, it is first necessary to
  figure the expenses of the business.
• Three types of expenses need to be considered
  variable, fixed, and mixed.

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Expense types used for a CVP analysis

• Variable expenses are those that change with the
  volume of business. For example, the cost of
  renting a desk for each student increases as the
  number of students increases.
• Fixed expenses are those that must be paid,
  regardless of the number of customers. For
  example, at the school, the teachers' salaries
  are a fixed cost that must be met, no matter how
  many students there are
• Mixed expenses are part variable and part fixed.
• Teacher expense is both a variable expense, based
  on the volume of business, and a fixed expense,
  in that once a teacher is hired, the salary must
  be met regardless of the volume

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Calculate the income for a CVP analysis

• Once you have determined the expenses, you need
  to calculate the income, based on the volume of
  business.
• In the case of the school, income would be the
  tuition paid by each student multiplied by the
  number of students.
• Then, to find the CVP relationship, you would add
  the fixed costs to the total variable costs and
  compare that to the total income.

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An example of a total expenses chart
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An example of a revenue chart
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An example of a CVP chart
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Calculate profit or loss

• How can you calculate the profits from a
  business? If you know
• the fixed expenses
• the total variable expenses for a given volume of
  business
• the total revenue for that same volume of
  business
• All you have to do is add the expenses and
  subtract them from the revenue.

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Calculate the net income

• For example, suppose that you want to figure the
  profits from a charter school. You know that
• you are going to have 60 students
• the total fixed cost per month is 25,000
• the variable cost per student is 500
• the tuition income per student is 1000
• To figure the monthly profit
• Calculate the total expenses (25,000 50060
  55,000)
• And the total revenue (100050 60,000)
• Then you subtract the expenses from the revenue
  (60,000 - 55,000) to get the net income
  (5,000)

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Use Excel to calculate net income
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Use a what-if analysis

• Suppose you think that it might be better for the
  students if you limited the enrolment to 40. How
  would you calculate the net income?
• On the spreadsheet that you have set up to figure
  the profits, change the number of students from
  60 to 40, and recalculate.
• The spreadsheet will show a net income of 5000.
• Thus, at only 40 students, the school would lose
  5,000 per month.
• This process of changing the value of a variable
  in a calculation to see how the new answer
  compares with the old answer is called a what-if
  analysis.

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Use multiple what-if analyses

• If you are interested in doing several what-if
  analyses (for example, you'd like to see what the
  net income for the school would be for several
  different enrolments), you could do it by
  repeating the above analysis for each scenario.
• That is, change the enrollment to several
  different values, and see what effect this has on
  the net income
• Also, suppose that you would like to see what
  would happen to the net income if you raised (or
  lowered) the tuition.
• You could do this by entering several tuition
  amounts into the spreadsheet and noting the
  resulting net income.
• This is the principle of multiple what-if
  analyses.

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Use one-variable data tables to perform a what-if
analysis

• Doing multiple what-if analyses is time-consuming
  and tedious if you do it by hand.
• You can ask Excel to do multiple what-if
  analyses, and display the results in a table.
• For example, you could ask Excel to show you how
  the net income from the charter school varies as
  the number of students changes from 30 to 70
• To set up a one-variable data table in Excel, you
  first need to set up a spreadsheet that
  calculates the result you are interested in,
  based on a particular input.
• Once you have the spreadsheet set up with the
  proper formulas, you can proceed to create the
  data table.

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An example of a one-variable data table
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Create a chart from a data table

• It is often easier to understand data if it is
  displayed on a chart or graph.
• Excel provides the capability of displaying the
  cost-volume-profit data in a CVP chart.
• If you ask Excel to plot the expenses and the
  revenue against the volume, the result will be a
  CVP chart.
• To create the CVP chart, highlight the part of
  the data table you want to chart.

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A CVP chart based on a data table
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Use two-variable data tables to perform a what-if
analysis

• Excel provides the capability to create
  two-variable data tables, which allow two input
  variables, and one result variable.
• The data table will have the values for one input
  variable across the top row of the table, and the
  values for the other input variable down the
  first column
• Excel can create a data table that will display
  the net income based on different tuition values
  and different student counts.
• As with a one-variable data table, to create a
  two-variable data table in Excel, you must first
  create a spreadsheet that calculates net income
  based on the number of students and the amount of
  tuition
• Once the spreadsheet is set up, you can create
  the two-variable data table

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An example of a two-variable data table
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Create a graph for a two-variable table

• Just as Excel can create a graph of a
  one-variable data table, it can also create a
  graph of a two-variable data table.
• To do this, select the entire table.
• From the Insert menu, click Chart. Choose XY
  (Scatter) and Scatter with data points connected
  by lines without markers.
• Follow the instructions on the Chart dialog boxes
  to label the graph and the axes.
• Tell Excel to put the graph on a new sheet.
• When you click Finish, Excel will display a graph
  of the data table, with a different line for each
  of the rafting fees, using the example table from
  the previous slide.

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A CCP chart for a two-variable data table
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Use array formulas in Excel

• In Excel, an array is a set of cell ranges or a
  collection of data values.
• For example, B5B12 is an array of cell ranges
  2,4,6,8 is an array of data values
• Many Excel functions allow you to enter arrays as
  arguments.
• If you use an array argument in a formula, the
  formula is an array formula.
• Excel uses each value in the array to produce its
  result.

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Create and use array formulas

• For example, using the Excel function SUM, you
  could create the array formula SUM(B3B12C2).
• To ask Excel to treat this as an array formula,
  press and hold the Ctrl key and the Shift key
  while you press the Enter key (rather than just
  using the Enter key to enter the formula into the
  cell).
• This will cause Excel to put brackets around the
  formula, so that it looks like this
  SUM(B3B12C12).
• Don't try to type in the brackets themselves if
  you do, Excel will treat the formula as text
• Excel will interpret the formula
  SUM(B3B12C12) as a command to multiply each
  of the values in B3B12 by the value in C12, and
  calculate the sum of the values.

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Create formulas using multiple arrays

• Another example of an array formula using SUM is
  SUM(B3B12C3C12).
• Using this formula, Excel will multiply the first
  element in the first array by the first element
  in the second array, the second element of the
  first array by the second element of the second
  array, and so on, pair-wise through both arrays.
• The two arrays must be the same size if not,
  Excel returns an error message.

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Functions can display multiple values

• A few of the functions in Excel can display
  multiple values when given array arguments.
• Some examples are TABLE and TREND.
• Formulas that display several values must be
  entered into a range of cells that has the same
  number of rows and columns as the input array
  arguments have.

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An example of Excels Trend function
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Create scenarios to perform what-if analyses

• To perform what-if analyses with more than two
  input variables, you have to use scenarios, which
  are
• A set of values that Excel can put into a
  worksheet
• Created based on existing spreadsheets in Excel
• You use the Scenario Manager to set up and view
  different scenarios.
• Once you have the spreadsheet with one set of
  values, you can create several scenarios with
  different values.
• As you view each scenario, Excel uses the values
  in the scenario as input to calculate the
  results.

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Use the Scenario Manager dialog box

• To invoke the Scenario Manager and begin creating
  scenarios, start the Scenario Manager by choosing
  Scenarios from the Tools menu.
• In the Scenario Manager dialog box, click the Add
  button, and enter a name for the scenario.
• Enter the name for your first case, such as
  Normal Case.
• Type in the reference to each of the cells that
  are going to change during the scenarios.
• When you click OK, the Scenario Manager will
  prompt you for a set of values, one for each of
  the cells whose references you entered as
  changing cells.
• The original values will be entered. Since this
  is the original case, you can accept these
  values.

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The Scenario Manager dialog box
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Add additional scenarios
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View and edit scenarios

• When you have the scenarios defined, you can view
  each one by selecting the name of the scenario
  you want to see in the Scenario Manager dialog
  box.
• After you have selected the name, click Show and
  then Close.
• Excel will display the original spreadsheet, with
  the values from the scenario you chose.
• You can edit your scenarios from the Scenario
  Manager
• Select the scenario you want to edit, and click
  Edit
• This will bring up a dialog box in which you can
  change any of the input values
• You can then display the spreadsheet with the
  values from the edited scenario

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Create a scenario summary report to save your
conclusions

• Using the Scenario Manager, you can display a
  summary of the results from all of the scenarios
  you have created.
• This data can be displayed in a summary table or
  a PivotTable.
• To create a summary table based on the scenarios
  you have created, open the Scenario Manager.
• In the Scenario Manager dialog box, click Summary
  to view the Summary dialog box.

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The Scenario Summary dialog box
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A Scenario Summary report
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Create a PivotTable report and chart

• To create a Scenario PivotTable report
• Open the Scenario Manager dialog box and click
  Summary
• From the Scenario Summary dialog box, choose
  Scenario PivotTable report
• Excel will create a Scenario PivotTable report
  for all of the scenarios you have created
• Excel can also chart the PivotTable. To do so
• Click on the Chart Wizard from the PivotTable
  tool
• From the Menu bar, choose Chart and select the
  type of chart you want

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An example of a PivotTable report